Emergent Opportunities: Coming to a theater near you.

At any given day, there are hundreds if not thousands of startups attempting to disrupt some industry or the other. Fortunately for us, this gives us access to several historical and modern-day examples of such Disruptors to learn from – Walmart, MinuteClinic, Tesla, Netflix, Amazon, Warby Parker, etc. Learning from those past examples gives us the knowledge and tools we would need to identify and avoid our own enterprise from suffering the same fate the incumbent. In addition to avoiding disruption, we can proactively implement strategies within our own enterprise that can help transform ourselves to accept, adapt and adopt the emergent opportunities.

While the past examples are great, what could really help us reflect on what we have learnt is an example that we could look at today that’s in its early stages, where an incumbent is threatened (better someone else than us) so that we can predict how it could play out (for all involved) and then watch it play out as it happens.

It just so happens that such an opportunity has presented itself in the form of MoviePass vs AMC/Theaters.

MoviePass

MoviePass, originally launched in 2011 offering a monthly movie pass for $30/month – dropped its pricing mid-August 2017 to $9.99 / month plan that allows you to watch a movie a day in at a movie theater near you (extra for 3d/Imax – 91% Theater coverage).

With matinee pricing averaging $8 – $11 – if you watch more than 1 movie a month, it’s a no brainer that this saves the consumer money and on the flipside since MoviePass buys these tickets at full price – they lose money on every customer than sees more than 1 movie per month – and the only two (major) exceptions to this all-you-can-watch buffet is that you cannot see the same movie more than once and you can only see 1 movie per 24 hours.

Netflix is one of my favourite modern disruption and I think this is because it’s continued its innovation engine beyond what most of us would have expected an “e-business” to do – Online DVD’s to Streaming to Original content; another similar one is Amazon.

Looking at how Netflix turned out and if used that to look deeper into what could happen with MoviePass, we could end up with a Plan A; followed by a Plan B.

Plan A

Should MoviePass survives the initial bleeding and continue to grow subscription and captures additional funding it has to focus on reducing the cost per subscriber. This can be fairly straight forward:

  • As it is with the excitement of a new buffet – Many will try to watch 1 per day, eventually going to 1 every other day, down to 1 per week, and eventually 1 every other week. The reality is that the # of new movies that come out per month that someone would want to invest 2 hours in, are not that many – this should be expected behavior normalizing over time.
  • If it does end up with a very large customer base – it should be able to obtain discounted tickets – it is currently buying tickets at full price. Theaters do sell at discount via Costco, Sams, BJ’s – etc, so yes, it’s possible and this further reduces its acquisition cost.
  • Many theaters are dated and the ones who have upgraded are usually playing on their 3D and IMAX screens – MoviePass is $9.99 / month with an extra $10 per month if you want to see IMAX or 3D.

For the sake of coming up with a number, we could be looking at a subscriber watching 1 – 1.5 movies a month. With this alone, MoviePass makes money long term even though initially it costs them more; we can chalk this up as customer acquisition costs.

Using its large customer base to negotiate better ticket pricing and again, it increases how much it can make per subscriber.

With most subscribers wanting to watch the movie when it comes out (and it plays on an IMAX or 3D screen), the Avg. Subscriber Value goes up, again increasing what it makes per subscriber.

So, what has Moviepass done? So far it has made the cost around the “theater experience” predictable and the transaction a bit more straight forward. And if we were naive, we would say that this is all they want and that they will be content with the money they make on the subscriptions – but we are not and if we were a movie theater operator/network once MoviePass has grown into a massive subscription base – we should be scared.

Plan B

Now looking at where Netflix ended up once they started with “Online DVD Rentals” – you could expect the following things to happen:

  1. With a large subscriber base – MoviePass opens and sets up its own theaters based on subscriber population, and patterns/behaviours of those subscribers.
  2. A movie theater is an awesome experience – Moviepass could work with Netflix and license any of its amazing Originals for showing at a MoviePass theater; in addition to the usual Blockbusters.
  3. Moviepass enhances its memberships with concessions, family members, etc.

Every one of those items in Plan B increases revenue and as it executes point 1 – 2 and 3 and offers a well-integrated experience and product, over time traditional theaters that charged “too much” will be replaced by MoviePass theaters – which operate via a monthly subscription.

Reaction

Wait – this has not all happened yet, so now, if you were in AMC’s or some other major theater chain, you could say “We can avoid this” – MoviePass did not just drop its price to $9.99 from $30 for no reason – keep in mind that they’ve had 6 years to pivot and learn what works and what doesn’t. There must be something to subscription based pricing and we should take advantage of this “Emergent” opportunity to transform our business today.

Sadly, the response from the incumbents is what one would expect as history repeats itself – where they call such efforts “distractions” or that “we will be fine” (looking at you BlackBerry) – And AMC is doing the same thing now.

While we cannot predict the future, should MoviePass continue to grow without competition from the incumbents who continue to downplay or ignore the opportunity, Plan B will be inevitable once Plan A is successful and today’s theaters will find themselves disrupted, tomorrow.

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Blended Innovation Life Cycle – Readiness Score

This post looks at defining a blended innovation life cycle & an innovation readiness score – It builds on the previous post on Blended Innovation Model

Are we there yet?

Sharing progress on a revolutionary (or even an evolutionary) innovation becomes a challenge when not everyone speaks the same language – Core teams have worked the way they have for years and the MVIT operates with a completely different rule book (or at times; no rules).

A quick reference to the differences between the Core and the MVIT from a previous Blended Innovation Model post:

Screen Shot 2016-04-19 at 2.17.45 PM

You are here (X)

Core teams generally function as a well-oiled machine and follow a SDLC that covers some, if not all of the following:

SDLC

When looking at the interplay between the Core and the MVIT in a blended innovation engine we should look at how the MVIT lines up its efforts in relation to the existing SDLC (the well-oiled machine everyone is used to); Ideally we end up with two independent cycles that intersect or allow the movement (of products from the MVIT into the Core).

If we list out the various stages across development and implementation and assign responsibilities in the context of Revolutionary vs. Evolutionary innovation projects, we get a holistic view of where and when the MVIT is engaged.

For revolutionary/exploratory innovations – the MVIT (only) will start with POC’s and pilots in a vacuum to prove the value, and once it does, it will look at integrating with core to release the product in a limited scope for additional customer validation. Once larger validation has been performed the product will move to the core team for general availability. The matrix below helps illustrate the primary team(s) responsible for the slot/phase.

Screen Shot 2016-08-29 at 2.48.29 PM

For Evolutionary/ Growth / Acceleration innovations – the idea has already been validated and the primary purpose in MVIT’s involvement is to help rapidly pilot and accelerate the development so that It can be integrated and added without negatively impacting the product roadmap. The Pilot and Limited stages are identical as there really isn’t a pilot phase. Once larger validation has been performed the product will move to the core team for general availability. The matrix below helps illustrate the primary team(s) responsible for the slot/phase.

Screen Shot 2016-08-29 at 2.49.41 PM

Blended Innovation Life Cycle

Based on MVIT’s roles and efforts above – we can summarize and group MVIT’s role and efforts into 4 major phases and refer to it as the Blended Innovation Life Cycle (BILC):

BILC

MVP

During the MVP phase, the MVIT is focused on three progressive stages:

  1. Inception: Defining a very vague or high level idea that might seem like a good fit for the MVIT to work on.
  2. Fit: Refining the very vague/high level idea to answer “Does it fit?” – if we were to build this, can it integrate with the core product? How would it integrate? The focus here is on reaching an absolute Yes/No assessment on fit regardless of answering things like “when does it fit” or “how long will it take”.
  3. Pilot: MVIT will move forward and hack together a pilot that can be used for internal demos to showcase the idea – majority of the work is likely hardcoded or manually configured – the goal isn’t to make a finished product, but rather quickly show something that can help explain the idea and value add

It’s very likely that the MVIT never gets to stage 3 for majority of the ideas – but for the ones that do make it to the third stage – they then move to the next phase: “Viability”.

Viability

In the “Viability” phase the focus is on (internal) Customer Validation – the MVP is shown to the product team and other product roadmap stakeholders (like sales leadership) to assess business value. The product team would look at how the idea would enhance the product roadmap and would help define how the product would integrate with the core. A decision is made to move forward and to introduce to additional customers via limited availability.

Production

In the “Production” phase, the focus is around Limited Availability stage – the MVIT works with the Core Product team to build a closer integration where architecture, integration approach, development, QA implementation and pre-sales plans are defined, development and implemented (by MVIT and Core). For customers who enter limited availability, the MVIT is responsible for supporting its product(s) where MVIT will not only provide front line support where needed, but also deploy and maintain deployment environments.

Scale

The “Scale” phase is focused on two final stages

  1. Transition: where the product and its support is transition to the core team – all artifacts, such as code, support guides, implementation guides, etc. are documented and handed over.
  2. Mainstream deployment: where the core team works with operations and support team to take over deployment and support.

Summary

By defining the “BILC” in the manner we did – where the core team becomes an integral part of the innovation directly after the pilot, we help implement a process that allows a natural alignment to the Core’s SDLC and we don’t end up with a team that’s releasing under-baked products that don’t integrate well with the core product.

We can also number each stage in the “Blended Innovation Life Cycle” to obtain an “Innovation Readiness Score” and we can then use both the score and the phases to help report on the readiness of an innovation and figure out where we are and what’s next.

Screen Shot 2016-08-29 at 2.26.45 PM

Blended Innovation Model

This post looks at the blended innovation model within an enterprise – it expands on the previous post on A Start-up within an Enterprise

In a market segment/space, the portion that’s captured by an enterprise is its core. Outside this core is the new growth opportunity (the white space) that the enterprise has not (yet) captured; there can be additional enterprises in the same segment/space and over time the segment/space can increase and/or decrease – for the purpose of this post, we will assume that the segment/space stays the same.

m1

A brief re-cap on enterprises, startups and disruption: more details here and here.

Evolutionary

For most (enterprise) organizations, the core is grown by the natural evolution of the products/services: as customers use the products/services their requests transform the roadmap. With (somewhat) uniform time and resources, focusing on everything all the customers ask for becomes a challenge and priority is given to the top tier customer base.

m2

Most enterprises operate this way due to the low risk, as the needs have already been validated (due to customer demand). This type of innovation falls under evolutionary innovation.

Revolutionary

For startups, the entire “new growth” opportunity becomes the initial target; as time goes on and effort is put into defining the product-market-fit a smaller “core” emerges. In many cases the (perceived) core might pivot several times (see below A -> B -> X) prior to eventually finding its eventual core (if it doesn’t completely fail by then).

m3

The risk is much higher as customer validation still needs to happen, and significant time is spent in validation/product-market-fit. This type of innovation falls under revolutionary innovation.

Disruption

When these two behaviors exist within their own respective entities (startup and enterprise) and are in the same space/segment they form a complementary relationship – which often results in the demise of the enterprise (unless the enterprise acquires the startup). The customers that are lower in priority for the enterprise move to the startup, either because the product is too feature rich, the needs are not met or they feel that the enterprise has become too big for them (low end disruption, See Clayton Christensen’s work on disruption). As they move out, the enterprise sees that as an opportunity to expand to the new (higher revenue) opportunity and move away from the lower end. As time goes on, the enterprise’s core continues to move outwards and the startup continues to encroach into the enterprises core until the enterprise has nothing left (eventually leading to the startup becoming its own enterprise).

 

m4

 

The above describes the outcome when the two innovation modes are two different entities – but what if they were to be combined within an enterprise as a strategic initiative?

Blended Innovation

By making it a strategic initiative to combine both of these models within an enterprise to achieve a blended innovation engine; enterprises can greatly improve their competitive advantage and also accelerate their organic growth. With executive sponsorship, an additional dedicated team would need to be created (the MVIT).

A simple matrix can be put together to understand the differences between the core and the MVIT:

Screen Shot 2016-04-19 at 2.17.45 PM

The interplay between the teams in a blended model is outlined below (to cover additional complexity a multi-core/multi-BU enterprise is used).

An enterprise that has multiple BU’s may cover different verticals in its “new growth” space; however, since each core operates in an evolutionary way, most do not cash in the opportunity to build organically within the shared (white) space.

m5

There also needs to be some sort of “idea allocation engine” so that white space ideas (shared and non-shared among various BU’s), non-core customer requests and other exploratory ideas can be funneled into the appropriate team as there may be several ideas that seem “revolutionary”; but in-fact, they are actually more evolutionary in nature. The VCG (venture champion group) can help be the funnel to ensure that the MVIT is working on the appropriate opportunities (see:A Start-up within an Enterprise).

Once the idea generation and intake funnel is in place, the MVIT can begin piloting product for customer validation by releasing small pilots in the various spaces that iterate in functionality over time with customer involvement (as the viability becomes more obvious).

ps

Developing the pilot in a common language/platform will help with the transition and once the pilot is ready, it would be supported by the MVIT. Should a pilot gain significant traction, the MVIT would continue to support it in a limited availability engagement and once a MVIT produced product enter limited availability, the BU should start planning for support, integration, release and productization under GA.

The integration/transition process from MVIT to Core will likely be significantly more involved than the other efforts.

Depending on the release and GA schedule, the Core will absorb the customer-validated pilot into the core – providing it a competitive advantage that was accelerated with the help of the MVIT that it would otherwise not have had.

m6

 

In summary

A blended innovation model can greatly improve the competitive advance for an enterprise and also accelerate its organic growth. To successfully implement a blended innovation model it must be taken on as a strategic initiative, backed by executive sponsorship, have an additional dedicated team (MVIT), an idea allocation engine and a process for transition so that the investments in the blended model can be realized.

Blended Innovation: Evolution + Revolution

Evolution: a process of slow change and development.

Revolution: a sudden, extreme, or complete change in the way people live, work, etc.

Evolutionary innovation results in steady gradual growth over time whereas Revolutionary innovation results in rapid growth that eventually fizzles away (it needs another revolution to survive, or in most cases will become evolutionary over time). Both have risk – as a revolution can fail and an evolution can die out. (quick sketches to illustrate this below)

growthblend

A blended model lets an organization take in (successful) revolutions and accelerate its growth, allowing it to extend its evolutionary life.

growthblend_g.png

To accelerate innovation – both evolutionary and revolutionary should be leveraged and be a part of an organizations growth strategy; but thats easier said than done.

To build up and reflect on the previous learnings/posts the following is a summary on some crucial points that should be taken into account:

  • Define the process and rules for evolutionary innovation and revolutionary innovation (the core team focuses on evolutionary and the MVIT focuses on revolutionary) as a strategic effort.
  • Obtain executive sponsorship for the MVIT.
  • Define GTM strategy and process for revolutionary innovations
  • Communicate strategy to both top and bottom and get buy in.
  • Budget and fund the MVIT.
  • Reduce dependency and ensure the MVIT is a complete unit (has all the resources it needs and does not rely on others)
  • Focus on execution.
  • Optimize often.

An Enterprise cannot disrupt

One of the main reasons I joined Everbridge back in October 2015 was for the opportunity to learn from building a dedicated innovation lab as a strategic effort.

Coming into it, there were bits and pieces I had done over the years at various times/jobs and there was a lot of theory on how one would build a lean innovation lab within an enterprise to help accelerate innovation without negatively impacting the core enterprise model. 
This opportunity allowed me to put it all together and convert theory into practical experience.

Let me add to the title of this post – An Enterprises cannot disrupt because of the way its’ structured; and for the same reasons, it also cannot disrupt itself.
Enterprises already have a well defined model when it comes to how they make money:
value proposition, profit formula, key resources and processes that are needed to deliver to their model.

Startups on the other hand, do not known how money will be made, what really is the value proposition, what the profit formula looks like; they must find product-market-fit before they run out of money.

Running a startup with a model that’s suited for enterprises will hinder disruption; running an enterprise with a model that’s suited for startups, will result in chaos.

Usually the revenue/growth for enterprises comes from focusing on “evolutionary” innovation: innovations that are sustaining – whereas startups get their revenue/growth from focusing on “revolutionary” innovation: innovations that are disruptive.
The chart below takes various opportunities and attempts to size the revenue size and also categorize the type of innovation – before you disagree with a “but wait, there are startups that have more revenue that large enterprises”,  its important to note that every (successful) startup, does eventually become an enterprise and with that, it’s focus will also likely change.revenuerevolution
Since enterprises tend to focus on sustaining innovations, they leave the door wide open for startups to come in after new-growth markets that enterprises are not focused on or come in with a low-end disruption taking away existing customers who are okay with a lower feature product/service that comes with a lower price tag because startups will accept the (much) lower margins.
As the low-end moves out, enterprises go up the chain, focusing even more on their higher-valued accounts (charging higher prices to their most demanding customers) because that’s traditionally where they’ve found the money. As startups continue their low-end disruption moving upwards, always taking away the new lower-end as they get more feature rich; enterprises continue up the chain as well – only to one day find out there isn’t anything left at the top and to take from and the bottom has cleared away. (Disruptive Innovation: Clayton Christensen)
By making innovation a strategic effort and building a startup within the enterprise that goes after revolutionary innovations; it can diffuse and transition revolutionary innovations to evolutionary innovations – in other words, it can disrupt by not disrupting and stopping others from disrupting itself.

Reasons innovation teams within an Enterprise fail

  1. A dedicated “innovation” team that works outside the company’s core “processes” (a.k.a. red tape) does not exist
  2. You share or borrow resources from other teams who help out in addition to their core duties or have a “20% time” policy.
  3. A budget to spend on non-core R&D and other expenses was never factored in and/or approved.
  4. People expect the output from this “innovation” team to follow the same rate of return as your core product teams.
  5. You plan on engaging other (Architects, DevOps, Eng., etc.) core teams after all the work is done to come up with some sort of transition plan.
  6. No committed initial plan on what you will go after initially.
  7. No pass/fail metrics were setup.
  8. You do not have complete buy in from the top.

While all of the reasons above carry weight, if I had to pick one, it would be the first reason – the lack of a dedicated innovation team.

For most enterprises that have a part-time innovation team; all that innovation gets pushed aside when shit hits the fan – then its all-hands-on-deck – innovation, becomes an afterthought.

From a previous post: “It’s important for an enterprise to have a team that focuses on innovation as a “full-time strategic” activity and not as a “part-time ad-hoc” effort in order to have a greater chance of success with innovation – here is why: 75 % of venture-capital-backed start-ups fail; and 50% of backed start-ups make it to their 4th year. These startups, usually consist of dedicated entrepreneurial teams trying to build something, spending 100% of their energy, every minute of every hour trying to make it successful – they are in it full time. If a startup’s “full-time” innovation effort has such a low rate of success, what will be the success rate of a part-time effort?”

A dedicated team must be created if an enterprise wants to make innovation a strategic effort. If you have no one fully focused on innovation, you’ve decided not to focus on innovation.

Trends to look out for in 2016

  1. Scalable video streaming-as-a-service for “critical” use will become mainstream, allowing several disconnected parties to be connected in real time and allow for the streams to be recorded and audited.
  2. Collaboration at the tap of a button will become a priority – Moving from an afterthought to a forethought, well integrated as part of a workflow and will be moving away from textual to visual (video) collaboration.
  3. Predictive analytics with preventive measures around service performance and optimization will continue to be a big ask.
  4. There will be a larger focus on building product offerings around personal safety/security – i.e. in the case of a disaster/attack, people will want to know that you are safe, what your last location was – or if you are headed to an impacted zone.
  5. Customers will expect well integrated solutions that provide complete end-to-end workflows with an emphasis on usability.
  6. Enterprise situational engagement will be an interesting trend where corporations will want closer social engagement for critical events, such as threats, harassment, anonymous tips, etc.
  7. Connected Health will continue to be an interest for many with a large dependency on EHR integration’s for enterprise hospitals – virtual beds will become more common; however small to medium provider groups will more readily pick up innovative tools showcasing the benefits of technology in providing better care.